Return on Investment

Return on investment (ROI) is a calculation used to quantify the gain in funds after making an investment. In mathematical terms, ROI is given by

where I is the initial investment and F is the final value of the investment. For example, if you invested $100 on a roulette table, and left with $300, then your ROI would be given by

A ROI of 0 indicates no change in funds following investment, or in other words, one recovers exactly the same amount of money that was invested. A ROI of less than 0 indicates a loss following investment, whereas a ROI of greater than 0 indicates a profit. Finally, a ROI of – 1 (or – 100% if expressed as a percentage) indicates a total loss of the investment.

ROI is a particularly important quantity when it comes to gambling. Whether it is sports betting, poker, or games offered by online casinos, it is always useful to know how profitable your gambling is and how much you could expect to win if you continued to gamble. If you are successful enough to make long-term profits from gambling, monitoring your ROI (and ensuring it stays above 0) certainly helps in planning the number and size of bets required to generate a desired level of income. In fact, achieving a healthy ROI with minimal risk is one of the main keys to success in gambling. But what constitutes a good ROI can be somewhat subjective. For those people who treat the occasional sports bet as something of a hobby, achieving a ROI of 0 would probably be more than acceptable. After all, this would just turn out to be free entertainment. For serious gamblers who look to make a reasonable income from gambling, however, the goal is to achieve a ROI that is superior to the return on other less risky forms of investment (such as the purchase of shares in a business). In this case, the gambler might aim for a ROI of 10% or even higher across a large number of wagers.

To illustrate the idea of ROI further and show how this translates into winnings, suppose that a handicapper bets $110 on a number of games with the aim of winning $100 on each game (taking account of the standard 10% vigorish at most sports betting agencies). If the handicapper places 100 bets and they are able to pick the winner 50% of the time, their net profit would be given by

50 wins × $100 – 50 losses × $110 = – $500.

Since the handicapper invested a total of $11,000 (100 bets at $110) and ended up with $10,500 in their account, their ROI in this example would be given by – 4.5%. In fact, with a 10% vigorish, the handicapper would need to win 52.4% of their wagers to break even and achieve a ROI of 0. The ROI for other winning percentages, assuming a successful wager of $110 pays $100, is illustrated in the following table. The net profit expected after 100 wagers is also shown in the table

As could be expected, the table shows that as winning percentage increases, so does ROI and net profit after a fixed number of wagers. In fact, for every 1% increase in winning percentage, ROI increases by approximately 1.9% and net profit by $210.

In addition to planning net profit after a number of wagers, ROI is also useful for deciding whether or not it is worthwhile investing additional money in a sports betting service. The idea behind most sports betting services is that in exchange for a subscription fee, you can have access to the picks of experts who report a relatively high winning percentage or ROI. Essentially, the decision to invest in a sports betting service should be made by considering whether or not the increase in ROI is enough to cover the cost of the service over a given number of wagers. As an example, suppose a handicapper is able to pick the winner 58% of the time, and plans to put down 100 wagers of $110 (each to win $100). Using the above table, the handicapper can expect a ROI of 10.73% or a net profit of $1,180 over 100 wagers. Now suppose that for a fee of $500, the handicapper has access to a sports-betting service that reports an average winning percentage of 63% (or a ROI of 20.3%). Over 100 wagers, the handicapper can expect a net profit of $2,230 minus the $500 subscription fee, which is $1,730. In this example then the sports service has increased the handicapper’s expected net profit by $550, and certainly seems to be a sensible investment.

As a final note, it is worth mentioning that a positive ROI in gambling can often be more financially rewarding than the returns possible on other forms of investment. The reason for this is that in gambling, the initial investment required to generate a specified net profit is generally much lower than what would be required in other forms of investment. To illustrate this with an example, suppose a handicapper is able to achieve a ROI of 10%, and is considering placing 100 wagers of $110 over a period of six months (each to win $100). In total the handicapper would be investing $11,000, and with a ROI of 10%, they would have an expected net profit of $1100. Alternatively, the handicapper can invest money in business shares that also have a ROI of 10% (again over a period of six months). So what should the handicapper do? If the handicapper has $11,000 at their disposal, then the choice between the two investment options is trivial. That is, each of the two investment options is expected to generate the same net profit. In the situation though where the handicapper has less than $11,000 to invest, then the choice to gamble becomes the more favourable option. In gambling, the winnings from successful wagers can be reinvested so that the initial investment required is much lower. If the handicapper has a bit of luck, he might only need a starting balance of $1000 or so to allow him to place the 100 wagers and earn a net profit of $1100. Comparatively, investing $1000 in the business shares would only generate a net profit of $100 over the six-month period.